Things to Look at Before Buying Stock
There are a few things you should consider prior to purchasing or investing in stock. They include:
1. Profit to Earnings Ratio. Also called P/E, this number tells you how much money you will be paying for every $1 in company earnings.
Example: A stock with a P/E of $15 means that anyone purchasing the stock is willing to pay $15 for every dollar in company earnings. The greater the number, the more it shows that investors are hoping the stock will grow in the future. Usually technology and internet companies have higher P/E’s since stock purchasers are hoping for large returns later on down the line.
P/E ratios change so make sure you closely watch the ratio, especially after the earnings reports
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Stock Price. The price of a stock can tell you a lot about it and whether or not the company is a good investment. You need to look at the price history of the stock. There is no stock that rises only and never falls. Check to see how the stock has done over an extended period of time; not just what it is doing currently. See sample Google chart below. (Courtesy, Google.com)
3. News. News is the one thing that you can’t easily determine if and how it affects stocks until it happens. Rumors in the news about a company can cause stock prices to rise or fall or no news at all may have a major effect on stock prices. If you are considering buying any stock, you should check to see what the news has to say about it. The news can help you to avoid any upcoming surprises or red flags about the company.
What’s Good About Investing in Stocks?
There are many good and bad aspects about investing in stocks. Any decision to invest should be done after doing thorough research to determine if it is the right choice for you. When making your decision, you should think about the following:
1. Chance for big returns on investments (ROI). The beauty of investing in stocks is that you have the chance to make a lot of money. Stock prices have been known to double, triple or quadruple. If you take the time to do some research, you can make a great deal of money to add to your nest